Wednesday, 20 October 2021
News — Migration to Cost Reflective Electricity Tariffs
In 2008, 2013, as well as in 2015, The Southern African Development Community (SADC) Energy Ministers pronounced that tariffs in the region should be cost-reflective by the year 2019. Most countries are failing to migrate to cost-reflective electricity tariffs due to challenges in raising local tariffs to cushion consumers. In an effort to align with the regional decree whilst cushioning the nation’s electricity consumers, ESERA developed a Subsidy Framework to work as a migration tool towards attaining this important mission. In today’s article, we look into the subsidy framework; what it is and its goal.
The Authority and the Utility conducted several studies on the cost of supplying electricity in Eswatini. The latest Cost of Supply study, done in 2018, revealed that the then average domestic tariff was around 41% below the long run marginal cost of supply. Additionally, it revealed that the then tariff structure did not reflect the marginal cost of supply for almost all of the customer categories.
Being alert to the challenges associated with cross-subsidization and in line with Eswatini’s commitments to SADC, the Ministry of Mineral Resources and Energy, through ESERA, initiated to remove cross subsidies among customer categories and bring the electricity tariffs to cost reflective price levels for the different categories of consumers.
ESERA, having completed and submitted a Subsidy Framework for Cabinet approval, aimed at protecting Eswatini’s vulnerable population against steep electricity increments that are necessary to achieve cost reflectivity, has implemented a migration plan effective April 2021, along the 2021/22, 2021/23 tariff decision.
What will the Subsidy Framework Do?
The main objective of the Subsidy Framework is to shield customers who cannot cope with cost reflective tariffs’ high electricity costs, as tariffs migrate towards cost reflectivity.
It is designed to remove cross subsidies among customer categories, in order to bring the Eswatini Electricity Supply Industry to cost reflective levels for the different categories of consumers, to send correct signals to consumers in terms of their consumption levels and behavior and to develop a subsidy scheme for poor households to protect them from tariff increases and to enhance electricity access at affordable rates.
This framework ensures to cater and cushion all domestic customers. It introduces a new tariff category called the life line tariff. It is worth highlighting that the life line tariff was inspired by consistent concerns raised by customers during public hearings conducted by the Authority nationwide.
It is designed to cushion and provide a discount to vulnerable groups including the elderly, orphaned and vulnerable children and qualifying low-income customers. This type of tariff is an inclining block tariff (IBT) which means the applicable rates will differ according to the level of consumption. The IBT has 3 levels, all influenced by the amount of monthly consumption for that particular customer’s household. Customers will have to apply to be a part of this tariff structure where they will have to meet a set selection criterion to qualify. This selection criterion is based on the customer’s economic status and their level of monthly consumption.
